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6 reasons credit scores aren't always fair

Your credit score is one of the most important numbers in your life. If it's too low -- say, under 640 -- you'll struggle to qualify for a mortgage loan. And if you do get a loan, you'll have to pay higher interest rates.

And here's the unfortunate truth: Your credit score can be low even if you pay all your bills on time. That's because certain consumers, even if they're responsible, will struggle to boost their credit score to the 740 range, the number that most banks and lenders consider to reflect excellent credit.

Here are six reasons why credit scores aren't always a fair gauge of financial behavior.

1. Not all on-time payments are considered equal

What's the biggest problem with credit scores? Probably that they don't rise when you pay your utility bills, medical bills, phone bills or rent on time.

These payments, unlike the payments consumers make for their auto loans, mortgage loans or credit card accounts, are not included in credit reports. So even if you've never missed a utility bill or rent payment, your credit score won't budge.

But if you do fall behind on payments such as medical bills, your score might drop.

"If you see Dr. Jones on a regular basis and you make those payments on time, they won't be reported until you start missing payments," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling based in Washington, D.C. "The good behavior isn't reported. The bad behavior, though, might be."

2. Your score doesn't care about your salary or job

Your credit score won't jump even if your salary rises. It also won't increase if you get a better job. Of course, it won't fall if you lose your job, either. That's because your job status or income level has no impact on your credit score.

This might seem odd. But Anthony Sprauve, senior consumer credit specialist with FICO, has an explanation.

"Our research over the past 25 years has shown that income, savings or job status are not a predictor of someone's likelihood to repay a debt," Sprauve says. "What is a predictor is your previous payment history, how you manage your accounts. Do you carry balances? How often do you open new lines of credit? Those are the things that the score looks at to evaluate your likelihood of repaying debt."

3. Scores care as much about your past as your present

Ever declare bankruptcy? Have you lost a home to foreclosure? These negative events can cause your score to drop 100 points or more.

What if you've paid every bill on time since you declared bankruptcy? Your credit score will still suffer. You might consider yourself a new, more responsible person. But a bankruptcy or foreclosure will remain on your credit report for seven to 10 years. And it will damage your score -- although the damage becomes less as more time passes -- until it finally falls off your credit report.

4. Credit scores don't like it when you don't use credit cards

Your credit score will fall if you rely mostly on cash to pay your bills, buy your groceries or fill your car's gas tank. This comes as a surprise to some. But part of your credit score depends how consistently you pay back the money you've borrowed. If you don't use much credit, the credit bureaus can't measure how well you use it.

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